South Carolina Life Insurance Practice Exam

In which type of life insurance policies can the policy owner skip premium payments without risking policy lapse?

1. Whole Life

2. Term Life

3. Universal Life

4. Variable Life

The correct answer is: Universal Life

The correct choice is Universal Life insurance. This type of policy is designed with flexibility that allows the policy owner to adjust their premiums and even skip payments without causing the policy to lapse, as long as there is enough cash value accumulated within the policy to cover the cost of insurance. Universal Life policies feature a cash value component, which grows over time. If premium payments are skipped, the insurer will deduct the cost of insurance from the cash value. As a result, the policy can sustain itself through its cash value during periods when the policyholder is unable or chooses not to make premium payments. In contrast, Whole Life insurance requires consistent premium payments throughout the life of the policyholder to maintain the policy's viability. Skipping payments in a Whole Life policy can lead to a lapse if the cash value is insufficient to cover the premiums. Term Life insurance is typically a pure death benefit policy without cash value. Missing payments in a Term Life policy will usually cause the coverage to terminate, as there is no provision for cash value to cover missed premiums. Variable Life insurance combines both a death benefit and a cash value, which can be invested in various accounts. Similar to Whole Life, failing to make premium payments can lead to policy lapse if there isn’t sufficient cash value